Friday, June 18, 2010

Raise the Retirement Age

I was shocked to hear that in France, the public retirement age is 60 (enshired in law since 1982). I was shocked, though not surprised, to hear the French are planning a series of protest against plans to raise the retirement age to 62.

France (like the rest of Europe) faces a twin problem:
  • Too much government debt (France is higher than Spain -80% 2009)
  • Threat of second recession and even higher unemployment.
The problem is that it is very difficult to reduce government debt without adding to the second problem. If Europe is not careful, it could find itself in a situation of mass unemployment, stagnant growth, growing disillusionment and political upheaval. (spending cuts and economy)

Raising the retirement age is one of the few policies which can tackle structural budget deficits without causing lower economic growth. Raising the retirement age can increase a countries productivity and enable higher tax revenues. It can help reduce budget deficits without causing lower growth.

People will say it is not fair that if they plan to retire at 60, it later gets changed to 61. But, I don't have too much sympathy for these people, what about those who suffer long term unemployment? - those who have little chance of employment because of stagnant growth?

Why should society, pay pensions for an average of 25- 30 + years of an adult's life? Most retirement ages were set at the turn of the century, when life expectancy were much lower. Why do we have to cripple the economy and set higher tax rates, just so we can enjoy decades of saga holidays, and day time TV?

It is inconvenient to have to work another year, but, it is a disaster to have youth unemployment rates of 40%.

The problem is people protest about the wrong things. Why aren't there mass protests about double digit unemployment rates, and the ECBs fetish with low inflation in the face of recession?

OK, maybe a strike about the mistakes of not pursuing quantitative easing in the face of a liquidity trap may not captivate the average voter. But, we need to keep things in perspective, having to working to 61 is not the end of the world. A second recession in 2011 would be a real disaster for the European Union.

I'm not saying raising the retirement age is a panacea for all problems. Changing the retirement age probably won't really determine next years economic growth rate. But, it does make sense in the long term. If life expectancy increases, we simple can't afford to pay generous public sector pensions for 50% + of a persons adult life.

Jean-Claude Mailly called the legislation "socially unjust and economically inefficient."

I never though I'd say this, but, France could do with its own Margaret Thatcher now. Raise the retirement age to 68. That's what I want.

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1 comment:

Mark said...

Why not just privatize social security? What is wrong with people saving and planning for their own retirement and using their own choice on when and under what conditions to retire? The problem would be solved.
Taxes and debt would be less and society as a whole would grow richer.